Principles of credit management

1. Principles of credit management www.avendus.com/india

2. What is credit management? In simple words, credit management is that procedure in the financial world, where the payments that a customer has to make to the vendor are monitored and eventually collected. A person or a business that has good credit management score would have less amount to finally pay to the debt collectors. In order to have liquidity and cash flow, having a good credit management score is really very important. this would help in times when the business would want to venture on a profitable idea but does not have sufficient funds to make it possible. Credit management for banks is based on certain principles. www.avendus.com/india

3. Liquidity As mentioned above, maintaining a good credit score is very important in order to keep liquidity. Liquidity means having cash flow in times of need. Credit score is checked by any bank before granting the business loan of any kinds. When you borrow money from bank to expand your business, the bank does not give it without you first producing some kind of security. Failure of payment of the loan finally leads to the bank seizing the asset that was produced as security. Assets that can provide enough liquidity are the ones that bank allows one to keep as security, so that when the public needs money, the do not have problem producing that. www.avendus.com/india

4. Safety Here safety means that the business that is borrowing the money should be able to repay the money being borrowed, along with interest in the stipulated period of time. Two things that the repayment depends on is the nature of the security kept as mortgage and the ability of the borrower to pay the money in time. It is very necessary and important to the bank that the asset that has been kept as security can fetch enough money if there comes any adverse situation. It needs to have steady and easy to calculate too. www.avendus.com/india

5. Diversity When lending money or selecting the portfolio of investment, the bank should adhere to the diversity principle. A bank should take care that is never allows all its funds to go into some specific security types only. It should take cautious decision of investing in different security types. There can be debentures, shares, property, investment of ESG funds etc. Why should this be done? This should be done in order to reduce the investment risk of the bank. This principle in applicable while giving loans to all firms, businesses, markets and factories. www.avendus.com/india

6. Profitability Last but not the least, profitability is one of the most important objectives in credit management. Why would a bank lend if they aren’t going to gain anything? A bank should make cautious decision of investing in assets that would give good and profitable returns. However, when it comes to branches of the government, this does see an exception in terms of interest. For others, the banks should focus on investing in securities that would not carry tax exceptions. www.avendus.com/india

7. Thank You www.avendus.com/india